In Re: Dex Media, Inc., et al.
Filing
22
MEMORANDUM OPINION. Signed by Judge Maryellen Noreika on 11/28/2018. (dlw)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
IN RE: DEX MEDIA, INC., et al.,
Debtors.
YELLOW PAGES PHOTOS, INC.,
Chapter 11
Bankr. Case No. 16-11200-KG
(Jointly Administered)
Adv. No. 16-51026-KG
Appellant,
C.A. No. 17-96-MN
C.A. No. 17-265-MN
C.A. No. 18-197-MN
V.
DEX MEDIA, INC.,
Appellee.
MEMORANDUM OPINION
Appellant, Yell ow Pages Photos, Inc. ("YPPI") appeals from several decisions entered in
the chapter 11 cases of Dex Media, Inc. and certain affiliated entities (together, "Dex Media").
The first is YPPI's consolidated appeal of (1) the Bankruptcy Court's January 19, 2017
Memorandum Opinion (Adv. D.I. 40) 1 and Order (Adv. D.I. 41), In re Dex Media, Inc., 564 B.R.
208 (Bankr. D. Del. 2017) ("Judgment on the Pleadings"), granting Dex Media's Motion to
Dismiss Yellow Pages Photos, Inc.'s Counterclaims and for Judgment on the Pleadings
(Adv. D.I. 31), and (2) the subsequent March 8, 2017 Declaratory Judgment and Order (Adv. D.I.
55) ("Declaratory Judgment"), specifying the declaratory relief granted in the Judgment on the
Pleadings. 2 YPPI further appeals the January 30, 2018 Memorandum Opinion (Adv. D.I. 104) and
Order (Adv. D.I. 105) ("Fee Award"), awarding Dex Media reasonable attorneys' fees in the
The docket of Dex Media's chapter 11 cases, captioned In re Dex Media, Inc., et al.,
Case No. 16-11200-KG (Bankr. D. Del.), is cited herein as "B.D.I._." The docket of the
adversary proceeding, captioned Yellow Pages Photos, Inc. v. Dex Media, Inc.,
Adv. No. 16-51026-KG (Bankr. D. Del.), is cited herein as "Adv. D.I. _."
2
In accordance with this Court's Order dated April 19. 2017, appeals C.A. No. 17-96-MN
and C.A. No. 17-265-MN are consolidated and under C.A. No. 17-265-MN.
amount of $504,025.50 and costs of $2,522.45. For the reasons set forth below, the Court affirms
the Judgment on the Pleadings, Declaratory Judgment, and Fee Award.
I.
BACKGROUND 3
The litigation history between the parties, including Dex Media's wholly owned subsidiary
SuperMedia, LLC ("SuperMedia"), is significant in each of these appeals.
A.
License
SuperMedia publishes yellow pages telephone directories and provides print, mobile, and
Internet advertising to small- and medium-sized businesses.
(DEX 560
,r
10).
Years ago,
SuperMedia was the yellow pages publishing arm of Verizon, operating under the name Verizon
Directories Corp. ("Verizon Directories"). On November 12, 2001, Verizon Directories agreed to
license a total of 5,000 stock photographs from a Florida company then known as Yellow Pages
Photos, Inc. ("Old YPPI"), a company wholly owned and operated by Trent Moore ("Moore").
Verizon Directories, "on behalf of itself and all of its affiliates," entered into a Service Contractor
Agreement with Old YPPI (the "License" or "License Agreement"). (DEX 577). The License
granted Verizon Directories a "perpetual" right to use OId YPPI' s 5,000 images (the "Licensed
Images") in any "print, electronic or other medium that may be used by Verizon Directories for
publication of directories without limit, ROYALTY FREE." (DEX 589). In exchange, Verizon
Directories paid Old YPPI a total of $660,000, the final installment of which was paid in 2004.
(DEX 658 ,r 16).
The License contained a transfer restriction, providing that Verizon Directories "may not
transfer these images to other parties or individuals unless authorized by YPPI; provided however,
that Verizon Directories is authorized ... to utilize these photographs and images in the advertising
3
Appendices referenced in Section I of this Memorandum Opinion are docketed in C.A. No.
17-265-MN and are cited as follows: YPPI's appendix (D.I 13-16) as "YPPI Appx. _";
Dex Media's appendix (D.I. 19-1) as "DEX_."
2
purchased by its customers .... " (DEX 590). The License also contained an anti-assignment
provision, which stated that Old YPPI "shall not assign its rights nor delegate its duties under this
Agreement ... to any third party[] without Verizon Directories' prior written consent in each
instance." (DEX 584 § 12).
In November 2006, Moore changed the name of Old YPPI - the Florida company that had
licensed the images to Verizon Directories -to AdMedia Systems, Inc. ("AdMedia"). (DEX 561
,r
13). At the same time, Moore created a second Florida company and named it, confusingly,
"Yellow Pages Photos, Inc." ("YPPI"). (Id.). Thereafter, AdMedia assigned its copyrights in the
Licensed Images to this new YPPI, despite the License's anti-assignment provision. Moore did
not inform anyone at Verizon Directories (or its successors) that he had created a second company
called "Yellow Pages Photos, Inc." or that AdMedia had assigned its copyrights to this new
company.
(DEX 504-506).
In November 2006, Verizon Directories spun off its directory
publication business into a public company, Idearc Media Corp. ("Idearc"), which succeeded to
Verizon Directories' rights under the License. (DEX 561, ,r 14). In July 2007, Idearc and Moore
agreed to amend the License to clarify that Idearc's contractors were authorized "users" of those
images. (YPPI Appx. 65-66).
On March 31, 2009, Idearc filed for bankruptcy in the United States Bankruptcy Court for
the Northern District of Texas (the "Idearc Bankruptcy"). (YPPI Appx. 5,
,r 14; 6, ,r 16); In re
Idearc Inc., 423 B.R. 138 (Banla. N.D. Tex. 2009). Its Chapter 11 plan of reorganization listed
all contracts to which Idearc was a party under its schedule of executory contracts. Idearc assumed
the License without objection from YPPI. (YPPI Appx. 6,
,r 16). On December 31, 2009, Idearc
emerged from bankruptcy as SuperMedia LLC ("SuperMedia"), which now enjoyed the right to
use YPPI's images under the License. (Id.,
,r 17).
3
Nearly four years later, on March 18, 2013, SuperMedia's parent company, SuperMedia,
Inc., commenced a pre-packaged Chapter 11 bankruptcy proceeding before The Honorable Kevin
Gross in the United States Bankruptcy Court for the District of Delaware. (YPPI Appx. 7, ,r 21 ).
The Chapter 11 plan contemplated a merger between SuperMedia, Inc. and Dex One Corporation,
with the merged entity called Dex Media; SuperMedia would emerge from bankruptcy as an
indirect, wholly-owned subsidiary of Dex Media.
(Id.).
The Bankruptcy Court confirmed
SuperMedia's plan of reorganization on April 29, 2013, and the plan went effective the next day.
(Id.). Since then, Dex Media has been the holding company and indirect parent to SuperMedia.
(YPPI Appx. 7, ,r 21; 12, ,r 39).
B.
SuperMedia Litigation
On May 30, 2013, YPPI filed two claims against SuperMedia's estate, both of which
alleged that SuperMedia breached the License and, as a result, infringed YPPI's copyrights.
YPPI' s first claim was a motion for the allowance and payment of an administrative expense claim
that alleged that the License was valid and enforceable and that SuperMedia violated its transfer
restriction during the "administrative expense period"
the period between when SuperMedia
filed for bankruptcy protection (March 18, 2013) and when it emerged from bankruptcy (April 29,
2013) (the "Administrative Expense Claim"). (DEX 9-14). YPPI's second claim was a Proof of
Claim that likewise alleged that the License was valid and enforceable and that SuperMedia
breached its transfer restriction but that covered the time period before SuperMedia filed for
bankruptcy (the "Prepetition Claim"). (YPPI Appx. 41-68).
Over the next three years, YPPI litigated its claims against SuperMedia before the
Bankruptcy Court, which, as the record reflects, included two phases of fact and expert discovery,
dozens of discovery disputes, multiple dispositive motions, two trials, and more than 40 hours of
testimony (the "SuperMedia Litigation").
The SuperMedia Litigation was premised on YPPI's
4
allegation that SuperMedia "violated the transfer restriction set forth in the License by transferring
the Licensed Images to third parties" and the third-party transferees used the images without
authorization. (DEX 601,
,r
15; 13,
,r
19). One of the alleged third-party transferees was Dex
Media. (DEX 117-18; DEX 60; DEX 39 ("SuperMedia has transferred copies of Yellow Pages'
images to a number of unlicensed third-parties ... , and there is evidence of the images being used
for at least one unlicensed publisher, SuperMedia's affiliate Dex.")). YPPI maintained that the
License was a valid and enforceable contract, as both of its claims hinged on the allegation that
SuperMedia breached the transfer restriction in the License. Specifically, YPPI alleged that the
License passed through the Idearc Bankruptcy and that "Idearc Media's rights under the
Agreement and the License ... vested in SuperMedia." (DEX 74-75, ,r 11; see also YPPI Appx.
45, ,r 11 ("As successor to Idearc, SuperMedia, LLC[] remained bound by the Agreement and the
License with YPPI under all of the terms and provisions of the License ... ")). YPPI also sought
to recover attorneys' fees under the License.
1.
YPPl's Assumption Motion
YPPI filed a Motion to Compel Assumption or Rejection of Executory Contract
(the "Assumption Motion") before the Bankruptcy Court. (DEX 1-8). In its Assumption Motion,
YPPI "maintain[ed] that the License is an executory contract and, consequently, must be either
assumed or rejected by the Debtors as part of their bankruptcy case." (DEX 5,
,r
18). On
October 9, 2013, the Bankruptcy Court denied the Assumption Motion, ruling that the "License is
not an executory contract."
In re SuperMedia, Inc., 2013 WL 5567838 (Banlcr. D. Del.
Oct. 9, 2013). The Banlauptcy Court noted that "[f]or a contract to be executory, there must be
unperformed obligations on behalf of both parties." Id. at *4. Here, once "delivery of the images
and the payments were completed nearly ten years ago [in 2005], the parties ha[d] received the
benefit of their bargain" and no unperformed obligations remained. Id.
5
YPPI moved for
reconsideration of the denial of its Assumption Motion. (DEX 28-39). The Bankruptcy Court
denied that motion, reiterating its holding that the License is not an executory contract. (DEX 4042).
2.
YPPl's Administrative Claim
On April 9, 2014, the Bankruptcy Court commenced a three-day bench trial on YPPI's
Administrative Expense Claim. YPPI introduced evidence of allegedly infringing advertising
videos that had been created for Dex Media by an outsourcer called bieMedia. (DEX 155 at 15:610; DEX 158-59 at 18:22-19:22).
YPPI argued that SuperMedia was responsible for these
infringing videos, arguing that bieMedia could only have obtained copies of the Licensed Images
used in the videos from SuperMedia because, according to YPPI, it "never sold any images to ...
outsourcer[s]" such as bieMedia. (DEX 164 at 23:17-19). In an opinion dated December 29, 2014,
the Bankruptcy Comi held that SuperMedia breached the License by transfe1Ting YPPI' s images
to its third-paiiy contractors, but it did so before SuperMedia filed for bankruptcy protection.
In re SuperMedia, Inc., 2014 WL 7403448, *13 (Bankr. D. Del. Dec. 29, 2014). The Bankruptcy
Comi found no evidence of any such transfers during the administrative expense period, (id.), and,
therefore, denied YPPI's Administrative Expense Claim. (Id. at* 19-*20). On February 11, 2015,
YPPI moved for reconsideration of the Bankruptcy Comi's denial of its Administrative Expense
Claim. (DEX 218-223). In that motion, YPPI again argued that SuperMedia had "transfe1Ted the
Licensed Images to Dex Media." (DEX 221, ,r,r 10, 13). The Bankruptcy Comi denied the motion
for reconsideration, holding that there was no evidence of a "deliberate physical transfer" of the
Licensed Images to Dex Media. Specifically, the Bankruptcy Comi held: "The transfer of the
Licensed Images resulted from the merger between SuperMedia, Inc. and Dex One. It was the
combining of operations between SuperMedia, Inc. (SuperMedia's parent) and Dex One that
created the 'transfer,' not a deliberate physical transfer. [Thus] the merger between SuperMedia's
6
parent and DexMedia did not result in a transfer which would constitute a tortious act." (DEX 22425).
3.
Rule 60(b) Decision
On January 12, 2015, SuperMedia filed an adversary proceeding formally objecting to
YPPI's Prepetition Claim (discussed below). (DEX 242-52). During discovery, it came to light
that YPPI had licensed its images to several outsourcers, including bieMedia. (DEX 227-33). This
was contrary to Moore's prior testimony that YPPI had never licensed its images to "outsourcers,"
and, therefore, if any outsourcers were in possession of YPPI' s images, they must have come from
SuperMedia. (DEX 164 at 23:17-19). On May 29, 2015, SuperMedia filed a Motion for Relief
from Judgment under Rule 60 of the Federal Rules of Civil Procedure and sought sanctions against
YPPI and its counsel for false representations to the Bankruptcy Court ("Rule 60(b) Motion").
(DEX 227). On September 3, 2015, the Bankruptcy Court granted the Rule 60(b) Motion in part
("Rule 60(b) Opinion"), finding that YPPI intentionally "hid" its license with bieMedia (and a
license with another outsource, ASEC) from both SuperMedia and the Bankrnptcy Comi, and that
YPPI and its counsel made "deliberate misrepresentations and non-disclosures" before, during,
and after the April 2014 trial. (DEX 226-239). The Bankrnptcy Comi found "most egregious"
the fact that Moore "forcefully testified under oath, testimony which profoundly affected the
Court's Opinion." (DEX 230). Based on these findings, the Bankruptcy Court sanctioned YPPI
and its counsel, barring recovery for any alleged transfers to bieMedia or other outsourcers whose
licenses had been concealed. (DEX 238). The Bankruptcy Court further awarded $111,679 to
SuperMedia for its fees and costs in bringing the Rule 60(b) Motion. (DEX 240-41 ).
4.
AdMedia Decision
The Bankruptcy Court scheduled a trial on YPPI's Prepetition Claim for November 2015.
In July 2015, SuperMedia deposed Moore and learned that the "Yellow Pages Photos, Inc." that
7
had filed claims in the Bankruptcy Court was not the same entity that signed the License.
(DEX 271-72). The counterparty to the License was Old YPPI, which had since changed its name
to AdMedia. (Id.).
SuperMedia was granted leave to amend its complaint in the adversary
proceeding to assert that YPPI did not have standing to enforce the License. Just before trial began,
YPPI filed a motion to join AdMedia as an "alternatively pled creditor." (DEX 342-50). In a
separate post-trial opinion ("AdMedia Decision"), the Bankruptcy Court denied that motion,
holding that YPPI acted with undue delay and in "bad faith," had "deceived" the Court and
SuperMedia by "omitting from its filings facts essential for adjudication of this case," and "actively
concealed" the fact that the YPPI before the Bankruptcy Court was a different entity than the YPPI
that had entered into the License. (DEX 504; DEX 520; DEX 524).
5.
Prepetition Claim
On October 23, 2015, sho1ily before the trial on YPPI's Prepetition Claim began, YPPI
filed an amended Proof of Claim, raising a new theory ofliability the "failure to assume" theory.
(DEX 306-336) ("Amended Proof of Claim"). As in the original Proof of Claim, the Amended
Proof of Claim continued to allege that the License was valid and enforceable and that SuperMedia
breached the transfer restriction in the License. (DEX 316, ,r,r 23-25). In the alternative, however,
YPPI now alleged that the License was invalid and unenforceable because SuperMedia's
predecessor, Idearc, failed properly to assume the License during its 2009 bankruptcy.
(DEX 314, ,r,r 17-18). Specifically, YPPI alleged that Idearc breached the License before the
Idearc Bankruptcy, "failed to cure" these breaches during its 2009 bankruptcy, and thus could not
assume the License when it exited bankruptcy. (Id.). YPPI maintained, ifldearc did not properly
assume the License, then "any use or transfer of the Licensed Images by SuperMedia at any point
in time has been a violation of Yell ow Pages' copyrights in the Licensed Images." (DEX 316, ,r
26). Prior to the November 2015 trial, however, YPPI abandoned its "failure to assume" theory
8
and, instead, pressed forward with its original claim that the License was a valid agreement that
SuperMedia breached.
The November 2015 trial ofYPPI's Prepetition Claim focused on the damages attributable
to SuperMedia's pre-petition breach of the License's transfer restriction. In an attempt to establish
the value of the YPPI images that SuperMedia transferred to its contractors, YPPI introduced
evidence of "hundreds" of print advertisements containing the Licensed Images, which had been
published in "Dex Media" directories. (Adv. No. 15-50044-KG, D.I. 153, 11/15/15 Hr'g Tr. at
164:17-190:1). The evidence that YPPI introduced included a yellow pages directory published
by Dex Media in 2015, which contained print adve1iisements using YPPI images. (DEX 487 at
72: 11-15). While YPPI cited the use of its images in print adve1iisements as evidence of the
images' value, YPPI conceded that the use of its images in print advertisement - including in the
2015 directory-was not an infringing use. YPPI's counsel stated: "[W]e don't dispute, of course,
that they license[d] the images and they were allowed to use them in printouts." (DEX 381 at
62:21-23; see also DEX 408 at 186:22 ("I'm not saying the uses are infringing.")).
YPPI's
principal, Moore, admitted the same thing while testifying under oath: "I do not think that the print
ad is a violation of the license agreement." (DEX 415 at 269:7-17). Moore's testimony on this
point was clear: Q. "And SuperMedia was allowed to use your images in print ads, correct?" A.
"Yes, they were." (Id. at 269:12-14).
On April 4, 2016, the Bankruptcy Court handed down its "final decision on the merits" of
the SuperMedia Litigation.
In re SuperMedia LLC, 2016 WL 1367070 (Bankr D. Del.
April 4, 2016) ("April 2016 Opinion"). The Bankruptcy Comi held that YPPI could not recover
statutory damages or attorneys' fees under the Copyright Act because it had failed to timely
register its copyrights. Id. at *4. The Banlauptcy Comi fmiher held that YPPI could not recover
attorneys' fees under the License because AdMedia, not YPPI, was the real paiiy to the License.
9
Id. YPPI was left with a claim for actual damages based upon SuperMedia' s unauthorized transfers
to its contractors. The Bankruptcy Cami awarded YPPI $303,210 in actual damages. Id. at *9.
SuperMedia has paid that judgment in full.
C.
Dex Media Litigation
1.
Florida Action
On April 29, 2016, less than a month after the Bankruptcy Court's April 2016 Opinion,
YPPI sued SuperMedia's parent, Dex Media, in the United States District Cami for the Middle
District of Florida, alleging that Dex Media infringed YPPI's copyrights on the same 5,000 images
at issue in the SuperMedia Litigation. On July 8, 2016, Dex Media responded to that complaint
by filing the instant Adversary Proceeding in its pending Chapter 11 case before Judge Gross
(the "Dex Media Litigation"). (YPPI Appx. 1-86). In its adversary complaint, Dex Media objected
to YPPI's claims against its estate and sought a declaratory judgment that Dex Media "has not
infringed any of the Licensed Images .... " (YPPI Appx. 13-14,
~
43). Given the extensive
overlap with the SuperMedia Litigation, the Bankruptcy Court agreed to exercise jurisdiction over
the Adversary Complaint.
2.
Motion for Judgment on the Pleadings
On September 30, 2016, YPPI filed its Answer and Counterclaims in the Dex Media
Litigation, asserting copyright infringement against Dex Media ("Counterclaims"). (YPPI Appx.
87-117). YPPI' s Counterclaims were premised on the same "failure to assume" theory that YPPI
previously raised, and abandoned, in the SuperMedia Litigation. Specifically, in the Dex Media
Litigation, YPPI alleged that the License was "never effectively assumed in the Idearc Bankruptcy
Case" due to Idearc' s failure to cure existing breaches and, as a result, "no rights under the
[License] remained or otherwise inured to the benefit of SuperMedia following the Idearc
Bankruptcy confirmation hearing." (YPPI Appx. 107-09, ~~ 36-45).
10
YPPI' s Counterclaims against Dex Media also relied on two propositions that contradicted
YPPI's representations during the SuperMedia Litigation.
First, whereas in the SuperMedia
Litigation, YPPI alleged that the License was a valid agreement that had fully "vested in
SuperMedia," (DEX 74-75,
,r 11); in the Dex Media Litigation, YPPI asserted that SuperMedia
had "no rights" under the License as of December 30, 2009. (YPPI Appx. 107-09,
,r,r 36-45).
Second, whereas in the SuperMedia Litigation, YPPI represented that the use ofYPPI's images in
print adve1iisements published in Dex Media directories was not an infringing use; in the Dex
Media Litigation, YPPI alleged that those same print adve1iisements infringed YPPI's copyrights.
(YPPI Appx. 110, ,r 51). YPPI's Counterclaims in the Dex Media Litigation also alleged that the
License was an executory contract (YPPI Appx. 105-06,
,r,r 30-32), even though the Bankruptcy
Comi twice held it was no longer executory as of 2005 in ruling on the Assumption Motion.
On November 3, 2016, Dex Media filed a Motion to Dismiss YPPI's Counterclaims and
for Judgment on the Pleadings (the "Motion for Judgment"). (YPPI Appx. 406-510). Dex Media
advanced four grounds in support of its Motion for Judgment: (1) YPPI's claims were baiTed by
claim preclusion or res judicata; (2) YPPI's claims were barred by judicial estoppel; (3) YPPI's
claims were barred by collateral estoppel; and (4) YPPI failed to state a claim upon which relief
could be granted. (YPPI Appx. 412-15).
On January 19, 2017, the Bankruptcy Court entered the Judgment on the Pleadings on three
of the four grounds: claim preclusion (res judicata), judicial estoppel, and collateral estoppel.
See Dex Media, 564 B.R. at 214-16. First, the Bankruptcy Comi held that res judicata applied
because "the claims in both actions are similar if not identical" such that "[t]rying the Dex Media
case would be a retrial of the SuperMedia Litigation." Id at 214. Second, the Bankruptcy Comi
held that judicial estoppel barred YPPI' s claims in the Dex Media Litigation because they were an
"improper" attempt to "flip-flop" on its positions on the validity of the License and the non-
11
infringing nature of print ads. Id. at 215. Lastly, the Bankruptcy Court held that collateral estoppel
barred YPPI' s claims in the Dex Media Litigation because they depended on two elements
essential to its Counterclaims: the executory nature of the License, and a transfer of the Licensed
Images to Dex Media. The Bankrnptcy Court stated, "[i]t is abundantly clear that the Court
adjudicated both of these issues, and that the determination was necessary to the comi's decision."
Id. at 216. Based on the foregoing, the Bankrnptcy Court entered its Memorandum Opinion and
Order granting Judgment on the Pleadings in favor of Dex Media. On January 30, 2017, YPPI
filed its notice of appeal of the Judgment on the Pleadings. (Adv. D.I. 42).
3.
Declaratory Judgment
Thereafter, Dex Media filed a "Certification of Counsel" and proposed form of Declaratory
Judgment on the basis that the Bankrnptcy Court failed to enter a judgment "in a separate
document" as required by Rule 58(a) of the Federal Rules of Civil Procedure. (Adv. D.I. 49).
YPPI opposed entry of judgment, arguing that the deadline for filing a motion for an award of
attorneys' fees expired on February 2, 2017, that Dex Media had missed the deadline, and that the
request for entry of the separate Declaratory Judgment was a ploy to "reset the clock" so that Dex
Media could timely file a motion for attorneys' fees. See Fed R. Civ. P. 54(d)(2)(B)(i) (a motion
for attorneys' fees "must ... be filed no later than 14 days after the entry of judgment."). On
March 8, 2017, the Bankruptcy Court entered the Declaratory Judgment. (Adv. D.I. 55). On
March 13, 2017, YPPI filed its notice of appeal of the Declaratory Judgment. (Adv. D.I. 57).
4.
The Fee Award
On March 23, 2017, Dex Media submitted its Amended Motion for Attorneys' Fees and
Costs under Section 505 of the Copyright Act. (Adv. D.I. 64). Prior to responding, YPPI was
permitted to take the deposition of not only the lead patiner representing Dex Media, but also one
of the associates on the Dex Media team. (Adv. D.I. 76 at ,r 15; Adv. D.I. 81). Following those
12
depositions, YPPI submitted its opposition to Dex Media's fee application. (Adv. D.I. 91). Dex
Media submitted its reply brief on June 26, 2017. (Adv. D.I. 94). The Bankruptcy Court heard
oral argument on Dex Media's fee application on January 11, 2018. (Adv. D.I. 115).
On January 30, 2018, the Bankruptcy Court issued its Memorandum Opinion granting the
Fee Award. (Adv. D.I. 104 & 105). The Bankruptcy Court agreed with YPPI that "a comi may
not award attorneys' fees as a matter of course but only after making a 'patiicularized case-bycase assessment."' (Adv. D.I. 104 at 4 (quoting Kirtsaeng v. John Wiley & Sons, Inc., 136 S. Ct.
1979, 1985 (2016))). Given the facts of this case, however, the Banlauptcy Comi was "convinced
beyond near ce1iainty that YPPI's lawsuit against Dex Media was a situation of 'objective
unreasonableness."' (Id. (quoting Kirtsaeng, 136 S. Ct. at 1985)). In reaching this conclusion, the
Banlauptcy Court found:
In its lawsuit YPPI is making claims contrary to its previous representations to the
Comi in the SuperMedia action. For instance, in the prior SuperMedia action, YPPI
claimed that the license was valid, enforceable and that print advertisements were
not infringement. In its new action, YPPI instead claims that the License was not
valid and therefore SuperMedia and its affiliates and customers had no right to use
the License. There are other inconsistencies.
(Id.). The Bankruptcy Comi fmiher held that fee shifting was warranted based upon considerations
of deterrence, finding that it is "very important for SuperMedia to end YPPI's harassment." (Id.).
As the Bankruptcy Court found: "YPPI filed the Dex Media lawsuit [in Florida] mere weeks after
the Comi' s ruling in the SuperMedia case. YPPI waited months to serve Dex Media with the
Complaint in the Florida Action. The Complaint in the Florida Action also asse1is positions
contrary to YPPI' s claims in previous litigation.
Deterrence is therefore an important
consideration." (Id. at 4-5). To determine a reasonable fee award, the Bankruptcy Comi "reviewed
the Dex Media attorneys' time records - line by line." (Id. at 9). "For each and every time record,
the [Bankruptcy] Court used its independent judgment to approximate the time necessary for the
dispute."
(Id.).
Based on this analysis, the Banlauptcy Court awarded Dex Media fees of
13
$504,025.50 and expenses of $2,522.45 - a reduction of roughly 33% of the fees and expenses
Dex Media incun-ed, and paid, in defending against YPPI' s claims. (Id. at 11 ).
In rendering its Fee Award, the Bankruptcy Court rejected YPPI's contention that Dex
Media could only recover fees based upon the prevailing rates in the forum of the litigation
(Delaware), and not the forum in which its attorneys practice (New York). (Id. at 5-6). In rejecting
this argument, the Bankruptcy Court found that "the knowledge and expertise of [Dex Media's]
Non-Local Counsel was critical to Dex Media's success in the litigation." (Id. at 7).
The
Bankruptcy Court also rejected YPPI's contention that a fee award would result in the "financial
ruination" of YPPI' s business, finding that "YPPI has not presented a clear record of its financial
circumstances." (Id. at 10). On February 1, 2018, YPPI appealed the Fee Award. (Adv. D.I. 107).
These appeals are fully briefed. The Court did not hear oral argument because the facts
and legal arguments are adequately presented in the briefs and the record, and the decisional
process would not be significantly aided by oral argument.
II.
JURISDICTION AND STANDARDS OF REVIEW
The Court has jurisdiction to hear an appeal from a final judgment of the Bankruptcy Court
pursuant to 28 U.S.C. § 158(a)(l). On appeal from an order issued by the Bankruptcy Court, a
district court "review[s] the Bankruptcy Court's factual findings under a clearly erroneous standard
and exercise[s] plenary review over legal issues." In re Trans World Airlines, Inc., 145 F.3d 124,
130 (3d Cir. 1998).
14
III.
DISCUSSION
A.
Judgment on the Pleadings 4
1.
Claim Preclusion (Res Judicata)
The Bankruptcy Court determined that YPPI's Counterclaims were barred under the
doctrine of claim preclusion or res judicata because those claims are based on events that predate
the filing of the SuperMedia Litigation: Idearc's alleged failure to assume the License in 2009,
years before the filing of the SuperMedia Litigation in 2013. Specifically, YPPI's Counterclaims
allege that Idearc "failed to assume" the License Agreement during its Chapter 11 bankruptcy in
2009, rendering the License unenforceable on December 30, 2009, such that SuperMedia therefore
had "no rights" according to YPPI to use the Licensed Images. (DEX 663
,r 35; DEX 665 ,r 45).
YPPI admits that it raised this same "failure to assume" theory of liability in the SuperMedia
Litigation (YPPI Br. at 15): indeed, in its Amended Proof of Claim, YPPI alleged in the
SuperMedia Litigation that, "as successor to Idearc," SuperMedia "did not effectively assume the
Agreement" and, as a result, "any use or transfer of the Licensed Images by SuperMedia at any
point in time has been a violation of Yellow Pages' copyrights in the Licensed Images."
(YPPI Appx. 421). The Bankruptcy Court determined that YPPI is barred from relitigating the
theory, because YPPI could have but did not pursue the abandoned claim. Dex Media, 564 B.R.
at 215 (citing Rouse v. II-VI, Inc., 2008 WL 2914796 (W.D. Pa. July 24, 2008)), ajf'd 2009 WL
1337144 (3d Cir. May 14, 2009)).
Under the doctrine of claim preclusion, "[a] final judgment on the merits of an action
precludes the parties or their privies from relitigating issues that were or could have been raised in
4
Pleadings appearing referenced in Sections III (A) and III (B) of this Memorandum
Opinion are docketed at Civ. No. 17-265-MN and are cited herein as follows: YPPI's
Opening Brief(D.I. 12) as "YPPI Br. at_"; YPPI's appendix (D.I. 13-16) as "YPPI Appx.
_"; Dex Media's brief (D.I. 19) as "Dex Br. at_"; Dex Media's appendix (D.I. 19-1) as
"DEX_"; and YPPI's reply brief (D.I. 20) as "YPPI Reply at_."
15
that action." Churchill v. Star Enters., 183 F.3d 184, 194 (3d Cir. 1999). The purpose is to "relieve
parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by
preventing inconsistent decisions, encourage reliance on adjudication." Davis v. Wells Fargo, 824
F.3d 333, 341-42 (3d Cir. 2006). Claim preclusion "bars not only claims that were brought in the
previous action, but also claims that could have been brought." Elkadrawy v. Vanguard Grp., Inc.,
584 F.3d 169, 173 (3d Cir. 2009). Claim preclusion requires three elements: "(1) a final judgment
on the merits in a prior suit involving (2) the same parties or their privies, and (3) a subsequent
suit based on the same cause of action." Sims v. Viacom, Inc., 544 F. App'x 99, 101 (3d Cir. 2013).
The Bankruptcy Court held that each of these elements was met and that the doctrine of claim
preclusion barred YPPI's Counterclaims. See Dex Media, 564 B.R. at 214. The Bankruptcy Court
concluded that "the claims in both actions are similar if not identical" and that both actions
involved "the same parties, the same Licensed Images, the same copyrights, the same chain of
events, and the same course of dealing" such that "trying the Dex Media case would be a retrial of
the SuperMedia Litigation." Id.
YPPI' s focus on appeal is that the Bankruptcy Court erred in declining to apply the "brightline rule" identified by the Third Circuit that "res judicata does not bar claims that are predicated
on events that postdate the filing of the initial lawsuit." Morgan v. Covington Township, 648 F.3d
172, 177-78 (3d Cir. 2011 ). According to YPPI, the Counterclaims assert instances of copyright
infringement that post-date the complaint filed in the SuperMedia Litigation: that Dex Media
published ads containing YPPI copyrighted images in telephone directories "since May 1, 2013"
- after SuperMedia's April 30, 2013 plan confamation date. (YPPI Br. at 23-24). Because these
instances of infringement occurred after the filing of the SuperMedia Litigation, YPPI argues that
its Counterclaims are not barred by the doctrine of claim preclusion. YPPI argues that the
16
Bankruptcy Court "expressly declined" to apply the Third Circuit decision in Morgan, and its
holding must be reversed. (Id. at 24).
The Court does not agree. The Bankruptcy Court distinguished the claims in Morgan from
the Counterclaims in this case, which are based on events that pre-date the filing of the SuperMedia
Litigation. See Dex Media, 564 B.R. at 213-14. As YPPI admits, to prevail on its Counterclaims
against Dex Media, "YPPI needs to prove that Dex Media published YPPI' s copyrighted images
without having a license." (YPPI Br. at 31). According to YPPI, the reason that Dex Media did
not have a license is Idearc's breach and failure to assume the License in 2009, which would have
occurred years before the filing of either the SuperMedia Litigation or the Dex Media Litigation,
and which YPPI knew had occurred before the conclusion of the SuperMedia Litigation.
Dex Media, 564 B.R. at 215. Because the Counterclaims are premised on an event that already
occurred at the time of the prior suit, res judicata may apply even if plaintiffs alleged new facts
that occurred after the first suit See Foster v. Denenberg, 616 F. App'x 472, 474 (3d Cir. 2015)
(barring second action despite "new facts occurring after final judgment" where, "in both the first
and second actions, Foster alleged fraud in connection with a 2007 real estate transaction). That
the Counterclaims allege new infringement claims post-dating the SuperMedia Litigation is
inconsequential where, as here, they are based on the same "failure to assume" theory that YPPI
raised and abandoned in the SuperMedia Litigation in favor of its theory that the License was
effectively assumed but later breached. Recognizing that it could not pursue such inconsistent
theories of liability at trial, YPPI chose to abandon its "failure to assume" argument in the
SuperMedia Litigation and cannot resurrect it now. The Bankruptcy Court correctly determined
that "abandoning a claim does not negate claim preclusion which is based on what was or could
have been asserted." See Dex Media, 564 B.R. at 214 (citing SupplyOne, Inc. v. Triad Packaging,
Inc., 2014 WL 3676524, at *5 (E.D. Pa. July 24, 2014)).
17
YPPI further argues on appeal that the Bankruptcy Court erred in finding that YPPI' s
Counterclaims are based on the same cause of action as asserted in the SuperMedia Litigation.
(See YPPI Br. at 28-32). A determination of whether two cases have "the same cause of action"
for purposes of claim preclusion "[t]ums on the essential similarity of the underlying events giving
rise to the various legal claims" in both actions. Churchill v. Starr Enterprises, F.3d 184, 194
(3d Cir. 1999). Dex Media argues that no such analysis is needed because YPPI admits that its
Counterclaims are the same claims YPPI asserted in the SuperMedia Litigation.
Here, the two cases involve the same 5,000 "Licensed Images," the same 2001 License
Agreement, and the same parties. It is also undisputed that in both the SuperMedia Litigation and
the Dex Media Litigation, YPPI asserted claims based on the same theory: that Idearc failed to
assume the License and, therefore, the subsequent use of YPPI' s images constituted copyright
infringement.
YPPI attempts to downplay the essential similarity of the underlying events,
alleging that only "some underlying events were the same in both cases." (YPPI Br. at 35). YPPI
argues that the direct copyright infringement alleged in its Counterclaims is based on Dex Media's
post-confirmation publication of Licensed Images, which lacks "essential similarity" with its
prior claims based on SuperMedia's pre-petition transfer of Licensed Images to third-parties
alleged in the prior litigation, which also included claims for breach of contract. (YPPI Br. at 2930). YPPI further argues that claims in the Dex Media Action and the SuperMedia Litigation
"require different evidence:" proof of SuperMedia's unauthorized transfer of the Licensed Images
to third-parties in violation of the parties' License, on the one hand, versus proof of Dex Media's
publication of the Licensed Images without any license, on the other hand. (Id. at 30-31). YPPI
cites the Athlone Industries case, where the Third Circuit reversed dismissal of an action based on
claim preclusion because "the suits involved different statutes, different acts, different wrongs and
necessitated different evidence to support the different material facts alleged." See United States
18
v. Athlone Indus., Inc., 746 F.2d 977, 986 (3d Cir. 1989). According to YPPI, the Dex Media
Action and the SuperMedia Litigation also involve different acts and different wrongs. The Court,
however, is not persuaded. YPPI's "different wrongs/different evidence" argument might appear
logical if it was not predicated on YPPI' s flip flop on the facts critical to the claims in the prior
litigation - the assumption and validity of the License.
YPPI argues on appeal that the Bankruptcy Court erred in finding that the prior and
subsequent suits involved "the same parties or their privies" because Dex Media was a close privy
of SuperMedia. (See YPPI Br. at 26-28). The Bankruptcy Court noted that "SuperMedia is a
wholly-owned subsidiary of Dex Media which justifies the finding of privity." See Dex Media,
564 B.R. at 214 (citing Lubrizol Corp. v. Exxon Corp., 929 F.2d 96, 966 (3d Cir. 1991)). YPPI
argues that the Bankruptcy Court erred in finding that SuperMedia was a privy of Dex Media based
solely on a finding of a subsidiary-parent relationship. According to YPPI, the Bankruptcy Court
failed to undertake the appropriate factual inquiry "requiring evidence of whether the parent
controlled the earlier lawsuit and its interests were represented by the subsidiary in that earlier
action." (YPPI Br. at 27 (quoting Kaiser Group Int'!, Inc. v. Nova Hut a.s., 375 B.R. 120, 125
(D. Del. 2007).
The Court agrees with Dex Media that YPPI has waived this argument on appeal. In its
Motion for Judgment, Dex Media argued that YPPI' s claims in the Dex Media Action involved
"the same parties or their privies" as the SuperMedia Litigation. (DEX 696-97). The record
reflects that YPPI did not dispute this point in its opposition or raise it during oral argument.
(See DEX 781-815; DEX 1055-1134). Having "never argued or mentioned" this issue below,
YPPI has waived the right to raise it on appeal. See C.A.C. v. United States, 449 F. App'x 194,
197 (3d Cir. 2011 ). Even if the issue had been raised below, however, the element of privity is
satisfied on this record. As Dex Media points out, unlike a new plaintiff, the Third Circuit has
19
held that "a lesser degree of privity is required for a new defendant to invoke claim preclusion"
and this "lesser degree of privity" is satisfied so long as "there is a close or significant relationship
between successive defendants." Lubrizol, 929 F.2d at 966. Here, SuperMedia is a wholly-owned
affiliate of Dex Media, was the copyright defendant in the SuperMedia Litigation, and was a
signatory to the License. The Court agrees that these facts support the Bankruptcy Court's finding
of privity. See Lubrizol, 929 F.2d at 966 ("!:or purposes of claim preclusion in this case, there is
a close and significant relationship between Exxon and Exxon Research" because "Exxon
Research is a wholly owned affiliate of Exxon, was a defendant in the initial New Jersey action,
and was a signatory to the Settlement Agreement.")
That YPPI abandoned its "failure to assume" claims in the SuperMedia Litigation has no
effect on the applicability of claims preclusion, as is clear under the case law. See e.g., Rouse,
2008 WL 2914796, at *10 n.7 (a plaintiff "cannot avoid the applicability of res judicata, merely
by choosing to abandon a claim that could have been pursued in [the prior action]"); SupplyOne,
Inc. v. Triad Packaging, Inc., 2014 WL 3676524, at *5 (E.D. Pa. July 24, 2014) ("abandonment
of [a] claim" in a prior action "has no effect on whether res judicata should apply"); Am Indus.
Leasing Co. v. Law, 458 F. Supp. 764, 769 (D. Md. 1978) ("Principles of [r]es judicata do not
permit a litigant to abandon a claim in one proceeding between the parties so that it may assert the
claim in another proceeding between the same parties"). The Bankruptcy Court properly held that
YPPI' s claims are barred by the doctrine of claim preclusion because not only could YPPI have
raised those claims in the prior SuperMedia Litigation, it actually did so. YPPI raised and then
abandoned its "failure to assume" theory claims on the eve of trial in the SuperMedia Litigation,
and it cannot resurrect them in the separate litigation against SuperMedia' s corporate parent.
Having determined that the Motion for Judgment was properly granted based on claim
preclusion, the Court need not consider whether judicial estoppel and collateral estoppel provide
20
alternative basis for the Judgment on the Pleadings. In the interest of efficiency, however, the
Court addresses the alternate bases for the Bankruptcy Court's ruling below.
2.
Judicial Estoppel
"Judicial estoppel is a fact-specific, equitable doctrine, applied at courts' discretion." In re
Kane, 628 F.3d 631, 638 (3d Cir. 2010). Judicial estoppel "is not intended to eliminate all
inconsistencies no matter how slight or inadvertent they may be." Id. The basic principle of
judicial estoppel, ... is that absent any good explanation, a party should not be allowed to gain an
advantage by litigation on one theory, and then seek an inconsistent advantage by pursuing an
incompatible theory." Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 358
(3d Cir. 1996). The Third Circuit has identified certain criteria for determining when seemingly
inconsistent litigation stances justify application of the doctrine:
First, the party to be estopped must have taken two positions that are irreconcilably
inconsistent. Second, judicial estoppel is unwarranted unless the party changed his
or her position in bad faith- i.e., with intent to play fast and loose with the court.
Finally, a district may not employ judicial estoppel unless it is tailored to address
the harm identified and no lesser sanction would adequately remedy the damage
done by the litigant's misconduct.
Montrose Med. Grp. Participating Sav. Plan v. Bulger, 243 F.3d 773, 779-80 (3d Cir. 2001).
Additionally, equity requires that the presiding court give the party to be estopped a meaningful
opportunity to provide an explanation for its changed position. Krystal Cadillac-Oldsmobile GMC
Truck, Inc. v. General Motors, 337 F.3d 314, 319-20 (3d Cir. 2003).
The Bankruptcy Court found that, while YPPI alleged in the SuperMedia Litigation "that
the License was valid and enforceable" it now asserts "that there was a failure to assume the
License Agreement because Idearc breached the License Agreement in 2005 and 2006 - something
YPPI knew had occurred before the conclusion of the SuperMedia Litigation." Dex Media,
564 B.R. at 215. Having abandoned the "failure to assume" claim, YPPI is now "reassert[ing] the
claim that Dex Media has no rights under the License Agreement. YPPI cannot flip-flop its
21
position." Id Similarly, YPPI introduced evidence of the print ads in the SuperMedia Litigation,
not to show infringement but as evidence of the value of the print ads." Id The Bankruptcy Court
determined that YPPI' s "inconsistent positions in disregard of prior statements is improper. The
reversal of positions requires the Court to apply judicial estoppel and grant Dex Media judgment
on the pleadings." Id. This Court reviews the decision whether to invoke judicial estoppel "only
for abuse of discretion . . . [asldng whether] its ruling is founded on an error of law or a
misapplication oflaw to the facts." Montrose, 243 F.3d at 780.
YPPI argues that the Banlauptcy Court's application of judicial estoppel rests on factual
and legal errors. (YPPI Br. at 35). YPPI argues that the Banlauptcy Court's application of judicial
estoppel rests on erroneous findings that YPPI reversed two of its positions. Although YPPI
maintained in the SuperMedia Litigation that the License was "valid and enforceable," (DEX 796
n.18), YPPI argues there is no inconsistency with its current position because it has not argued in
the Dex Media Litigation that the License is "invalid" only that it was not properly assumed.
(See YPPI Br. at 37 ("YPPI expressly alleged in the Dex Media Action that the Service Agreement,
to which the License was part, was not assumed by Dex Media's predecessor in the Idearc
Banlauptcy.")). According to YPPI, YPPI's Counterclaim merely alleges that: Idearc failed to
take the statutory steps necessary to assume the Service Agreement; no rights under the Service
Agreement remained or otherwise inured to the benefit of SuperMedia following the Idearc
Banlauptcy, and no rights passed or inured to the benefit of Dex Media through the Merger or
otherwise." (YPPI Br. at 38). Dex Media counters that "this is a semantic distinction without a
substantive difference." (Dex Br. at 35). The Court agrees with Dex Media that, regardless of
word choice, YPPI has taken conflicting positions. In the SuperMedia Litigation, YPPI stated:
"Under the chapter 11 plan, Idearc Media's rights under the Agreement and License, subject to the
Amendment, vested in SuperMedia." (DEX 74-75,
22
,r 11).
In the Dex Media Litigation, YPPI
asserts: "[N]o rights under the Service Agreement remained or otherwise inured to the benefit of
SuperMedia following the Idearc Bankruptcy confirmation hearing." (DEX 665, ,r 45).
YPPI further asserts that it did not take an "irreconcilably inconsistent position" regarding
print ads. According to YPPI, its introduction of print ads in the SuperMedia Litigation was
intended for the limited evidentiary purpose of establishing the value of its images and, in doing
so, YPPI confirmed "that it was not alleging in that case that SuperMedia's print ads were an
infringing use." (YPPI Br. at 38) (emphasis added). According to YPPI, such actions were not
"irreconcilably inconsistent" with YPPI's position in the Dex Media Litigation that Dex Media's
publication of print ads is an infringement. The Court agrees with Dex Media that YPPI did not
just "fail to allege" that print ads were an infringing use in the SuperMedia Litigation; rather, YPPI
represented that the print ads were not an infringing use. 5 YPPI' s current position cannot be
reconciled with its prior position.
YPPI further argues that the Bankruptcy Court "abused its discretion in holding that YPPI' s
reversal of positions requires the Bankruptcy Court to apply judicial estoppel." (YPPI Br. at 39).
According to YPPI, the Third Circuit has been clear that merely reversing positions alone does not
support application of judicial estoppel. See Ryan Ops., 81 F.3d at 362; EXDS, Inc. v. Ernst &
Young LLP (In re EXDS, Inc.), 316 B.R. 817 (Bankr. D. Del. 2004) (finding application of judicial
estoppel inappropriate where party to be estopped was not trying to manipulate the court or
bringing claims in bad faith); In re TWA, 261 B.R. 103, 111 (D. Del. 2001) Gudicial estoppel
inapplicable where there is no bad faith). While the Court agrees, the Bankruptcy Court's decision
5
At trial, YPPI's counsel stated: "[W]e don't dispute, of course, that they license[d] the
images and they were allowed to use them in printouts." (DEX 331 at 62:21-23; see also
DEX 358 at 186:22 ("I'm not saying the uses are infringing.")). YPPI's principal,
Mr. Moore, testified: "I do not think that the print ad is a violation of the license
agreement." (DEX 365 at 269:7-17). Moore's testimony was clear: Q. "And SuperMedia
was allowed to use your images in print ads, correct?" A. "Yes, they were." (DEX 365 at
269:12-14).
23
did not rest merely on reversing position, and the record provides ample support for the conclusion
that YPPI acted with an intent to play fast and loose with the Court.
YPPI contends that the Bankruptcy Court abused its discretion by applying judicial
estoppel based merely on inconsistent positions without finding that YPPI changed its positions in
"bad faith." (YPPI Br. at 39-40). According to YPPI, "[a]pplication of judicial estoppel in the
Third Circuit requires a showing of intentional wrongdoing." (Id. (citing Ryan Ops., 81 F.3d at
362; see also Kane, 628 F.3d at 639 (affirming District Court's decision not to apply judicial
estoppel where there was no finding of bad faith))). Conversely, Dex Media argues the magic
words "bad faith" are not required. (Dex Br. at 37-38 (citing Oneida Motor Freight, Inc. v. United
Jersey Bank, 848 F.2d 414, 419-20 (3d Cir. 1988) (applying judicial estoppel with no express
finding of bad faith))). Dex Media argues that all that is required is that the trial court's "findings
and conclusions" be sufficient to demonstrate bad faith. In re Nat'! Med. Imaging, LLC, 439 B.R.
837, 852-53 (E.D. Pa. 2009).
While YPPI has reversed positions on several critical issues, that is not enough. "Asserting
inconsistent positions does not trigger the application of judicial estoppel unless 'intentional selfcontradiction is ... used as a means of obtaining unfair advantage."' Ryan Ops., 81 F.3d at 362
(citing Scarano v. Central R. Co. ofNew Jersey, 203 F.2d 510,513 (3d Cir. 1953). The trial court
must "discern" such intent and not merely "infer" it.
See Klein v. Stahl GMBH & Co.
Maschinefabrik, 185 F.3d 98, 111 n.13 (3d Cir. 1999). An evidentiary hearing is not required, and
intent may be discerned upon a review of the record. See id. Here, Dex Media argues, Judge
Gross's findings are more than sufficient to discern bad faith: specifically, intentional wrongdoing
is satisfied by YPPI's tactical game of "wait and see." (Dex Br. at 38). According to Dex Media,
YPPI had all the information it needed to assert its "failure to assume" theory in the SuperMedia
Litigation and did indeed assert it in its Amended Proof of Claim. But YPPI chose to abandon that
24
theory and pursue one based on the validity of the License which contained a fee-shifting provision
and the possibility of recovery of its attorneys' fees. Following the Bankruptcy Court's ruling that
"YPPI cannot enforce the License Agreement, including the right to attorneys' fees," YPPI
reversed course by filing the Florida Action and trying its luck in a different court. The Third
Circuit has ruled that the doctrine of judicial estoppel" is "designed to prevent litigants from
engaging in precisely this kind of 'tactical' decision making." See Anjelino v. NY. Times Co., 200
F.3d 73, 100 (3d Cir. 1999).
YPPI's explanation for its change in position is unavailing. According to YPPI, the
Bankruptcy Court only "determined the facts necessary to trigger" YPPI's failure to assume claim
under 11 U.S.C. § 365(b)(l) in the April 2016 Opinion, without which, YPPI appears to argue, it
could not have concluded that the License was not properly assumed in the Idearc Bankruptcy.
Having simply adopted the Banlauptcy Court's conclusions, YPPI argues its new position "is not
an affront to the Bankruptcy Court or the integrity of the judicial system, just the opposite." (Id.).
Dex Media disputes this, arguing that YPPI had all of the facts "necessary to trigger" its failure to
assume claim in June 2015, when SuperMedia admitted to the 2005 and 2006 transfers, which
transfers are, according to YPPI, the uncured prepetition breaches that prevented Idearc from
assuming the License. The Court agrees. YPPI' s triggering argument does not hold up where
YPPI asserted its "failure to assume" claim in its Amended Proof of Claim filed on
October 23, 2015 - months before the April 2016 Opinion was issued.
Finally, the Court rejects YPPI's argument that the Bankruptcy Court ignored the judicial
estoppel requirement that the first court must have accepted the party's earlier inconsistent
position. (YPPI Br. at 41-44). New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001). YPPI
argues that, in the SuperMedia Litigation, the Bankruptcy Court rejected YPPI's argument that the
License was properly assumed in the Idearc Bankruptcy. (Appx. YPPI 527; YPPI 969). The
25
Bankruptcy Court, however, adopted YPPI's prior position that the License was valid and
enforceable when it entered a liability judgment finding that SuperMedia breached the License's
transfer restriction in December 2014. SuperMedia, 2014 WL 7403448, at *20. As Dex Media
points out, SuperMedia could not have breached a License that was never valid in the first place.
The Bankruptcy Court likewise adopted YPPI' s prior position that print ads were not infringements
of YPPI' s copyrights when it found, in its December 2014 Opinion, that "SuperMedia retains to
the present the perpetual, unlimited right to use YPPI's images under the License." Id. at *9. It
would not make sense for SuperMedia to retain the "perpetual, unlimited right to use YPPI' s
images under the License" and, at the same time, for SuperMedia's exercise of that right through
the creation of print ads to constitute copyright infringement.
There was "ample evidence in the record from which an inference of deliberate
manipulation could be drawn." Ryan Ops., 81 F.3d at 363. See AdMedia Decision (DEX 504,
520, 524); Rule 60(b) Decision (DEX 230; 235-38). Because there is no error of law or
misapplication of law to the facts, the Court finds no abuse of discretion. Montrose, 243 F.3d at
780.
3.
Collateral Estoppel
Collateral estoppel "bars the relitigation of a fact or legal issue that has already been
actually litigated." Wallace v. United Parcel Serv., 387 F. App'x 127, 128 (3d Cir. 2010). It
applies where "(1) the identical issue was previously adjudicated; (2) the issue was actually
litigated; (3) the previous determination was necessary to the decision; and (4) the party being
precluded from relitigating the issue was fully represented in the prior action." Henglein v. Colt
Indus. Op. Corp., 260 F.3d 201,209 (3d Cir. 2001).
The Bankruptcy Court held that YPPI' s claims in the Dex Media Litigation were barred by
collateral estoppel because those claims hinged on two issues that had been litigated and decided
26
against YPPI in the SuperMedia Litigation. Dex Media, 564 B.R. at 216. The first issue is whether
the License was an executory contract at the time of the Idearc Bankruptcy. Dex Media argues
that the Bankruptcy Court found that it was not, and this finding dooms YPPI' s "failure to assume"
claim: as a non-executory contract, the License could be neither assumed or rejected in the Idearc
Bankruptcy. (Dex Br. at 43). The second issue is whether SuperMedia transferred the Licensed
Images to Dex Media. Dex Media argues that the Bankruptcy Court found that there was no
transfer, and this also doomed YPPI's "failure to assume" claim: absent a transfer, there was no
basis to conclude that Dex Media possessed or was using the Licensed Images. Based on the
foregoing, the Bankruptcy Court concluded that "YPPI [wa]s therefore collaterally estopped from
establishing two elements which are essential to its Counterclaims." (Id.). YPPI argues on appeal
that the Bankruptcy Court's ruling that collateral estoppel barred YPPI' s Counterclaim is
unsupported both legally and factually. (See YPPI Br. at 44-49).
With respect to the nature of the License during the Idearc Bankruptcy, YPPI argues that
although the Bankruptcy Court found in 2013 that the License was not an executory contract at the
time of the then-pending SuperMedia Litigation, it "changed its analysis" and made later "rulings"
in 2015 and 2016 that the License was executory in the Idearc Bankruptcy. The issue of whether
the License is an executory contract was raised in the Assumption Motion filed on May 30, 2013.
After a full round of briefing the Bankruptcy Court denied YPPI's motion. The Bankruptcy Court
explained that "[f]or a contract to be executory, there must be unperformed obligations on behalf
of both parties." In the case of the License, the Bankruptcy Court ruled, "once delivery of images
and the payments were completed nearly ten years ago [in 2005], the parties ha[ d] received the
benefit of their bargain." (Id.). YPPI moved for reconsideration of this ruling, and, after another
full round of briefing, the Bankruptcy Court confirmed its prior ruling. (DEX 40-41 ). Based on
these prior rulings the Bankruptcy Court determined that YPPI was precluded from again claiming
27
that the License was an executory contract. The Bankruptcy Court considered and rejected YPPI' s
argument that there had been some change in its analysis or later rulings on the executory nature
of the License. On appeal, the Court finds no support for YPPI's contention. The later "rulings"
that YPPI cites are not rulings on the executory nature of the License at all. In ruling on crossmotions for summary judgment in 2015, the Bankruptcy Court made the statement that "in the
Idearc bankruptcy YPPI was an executory contract claimant." In re SuperMedia, 540 B.R. 85, 93
(Banla. D. Del. Oct. 27, 2015). In the April 2016 Opinion, the Banlauptcy Court similarly
described the License as an executory contract in the Idearc Bankruptcy. SuperMedia, 2016 WL
1367070 at *5. These characterizations were not rulings on the executory nature of the contract.
Dex Media points out that, as is common for administrative convenience, Idearc' s Chapter 11 plan
listed every contract to which Idearc was a party - executory or not - on a schedule. It was not
until YPPI filed the Assumption Motion that the Banlauptcy Court addressed whether the License
was in fact executory. The Court finds no enor in the Banlauptcy Court's conclusion that the issue
of whether the License was an executory contract in the Idearc Bankruptcy, filed 2009, has been
adjudicated. The Bankruptcy Court has twice ruled that the License was no longer executory once
delivery of the images and the payments were completed in 2005, years before the 2009 Idearc
Bankruptcy was filed.
YPPI does not dispute that the issue of whether SuperMedia transfened the images to Dex
Media was actually litigated and decided in the SuperMedia litigation. The Bankruptcy Court held
three times that there was no evidence of a transfer. (DEX 213-14; DEX 224-25; DEX 1148).
Rather, YPPI argues that the Banlauptcy Court erroneously concluded that YPPI was collaterally
estopped from establishing elements essential to its Counterclaims. Dex Media, 564 B.R. at 216.
YPPI argues that proving that a transfer of the Licensed Images to Dex Media occuned is not an
"essential" element to YPPI' s copyright infringement claim. According to YPPI, the fact remains
28
that Dex Media possessed and still possesses YPPI' s copyrighted images and continues publishing
them without YPPI's authorization.
(YPPI Br. at 49).
Dex Media disagrees, arguing that the
Bankruptcy Court's prior ruling "ruptures" YPPI's copyright claims: having failed to establish that
a transfer to Dex Media took place, YPPI is left to argue that Dex Media had "access to" the
Licensed Images by virtue of the "overlapping operations" with SuperMedia. The Bankruptcy
Court has already rejected this argument, finding that the "combin[ed] operations" of the two
entities did not result in a "physical transfer" of the Licensed Images to Dex Media. (DEX 22425). Despite having taken ample discovery on the issue, the Bankruptcy Court found no evidence
that Dex Media actually possessed the Licensed Images. The Bankruptcy Court ruled that Dex
Media "does not own or have legal title to its subsidiary's assets," and that "YPPI was ably
represented and failed twice to establish the transfer [to Dex Media] occurred." Dex Media, 564
B.R. at 216. The Court finds no error in the Bankruptcy Court's conclusion. Absent a showing
that Dex Media possessed the Licensed Images, YPPI' s copyright claims must fail.
The
Bankruptcy Court held three times that there was no evidence of a transfer and correctly held that
YPPI was estopped from asserting this claim yet again.
B.
Declaratory Judgment
1.
Separate Order Requirement
Rule 58 of the Federal Rules of Civil Procedure, made applicable to the adversary
proceeding by Rule 7058 of the Federal Rules of Bankruptcy Procedure, provides that, with
exceptions not applicable here, "[e]very judgment ... must be set out in a separate document."
Fed. R. Civ. P. 58(a). Such a judgment is only considered "entered" when it is "set out in a separate
document" that meets certain criteria. Fed. R. Civ. P. 58(c). The Third Circuit has stated that, for
a decision or order to qualify as a "judgment" set out in a "separate document" under Rule 58, it
"must, generally speaking, be a self-contained document, saying who has won and what relief has
29
been awarded, but omitting the reasons for this disposition ... " Local Union No. 1992 of Int'!
Bhd of Elec. Workers v. Okonite Co., 358 F.3d 278, 284 (3d Cir. 2004), as amended (Jan. 27,
2004) (emphasis added); Lawson v. Nat'! Cont'l-Progressive Ins. Co., 347 F. App'x 741, 743
(3d Cir. 2009) ("A judgment is treated as a separate document if it: (1) is self contained and
separate from the opinion, (2) notes tlte relief granted, and (3) omits ... the trial court's reasons
for disposing of the claims.") (emphasis added).
Dex Media argues that the Adversary Complaint sought, inter alia, a declaratory judgment
of noninfringement and that, prior to the entry of the Declaratory Judgment, there was no document
granting such relief. (See DEX 1152). "While the Bankruptcy Court's January 19, 2017 Order
indicated that Dex Media succeeded on its Motion [for Judgment on the Pleadings], it did not set
forth the specific declaratory relief to which Dex Media was entitled. Dex Media's Adversary
Complaint sought a declaratory judgment of noninfringement, and the January 19, 2017 order did
not specifically address this requested relief. Rule 58(a), however, requires judgments to address
such relief." (Id at 54-55 (citing Transamerica Ins. Co. v. South, 975 F.2d 321, 325 (7th Cir.
1992)).
Therefore, Dex Media argues, the Bankruptcy Court properly entered the separate
Declaratory Judgment. Conversely, YPPI argues that the Bankruptcy Comt should not have
entered the separate Declaratory Judgment because the Bankruptcy Court's Opinion and Order
already fully complied with Rule 58(a). According to YPPI, the Bankruptcy Court's Order
(YPPI Appx. 807) meets all three criteria because it is "self contained," "notes the relief granted"
in paragraph 1, "omits ... the trial court's reasons for disposing of the claims," and expressly notes
that such reasons are "explained in the accompanying Opinion." (YPPI Br. at 53). According to
YPPI, no further judgment was appropriate or needed, and no authority exists for entering a second
judgment on the same motion or pleadings. YPPI argues that the Bankruptcy Court's entry of the
30
later Declaratory Judgment "was error and achieved the unjust result of excusing Dex Media from
missing the strict deadline for filing a motion for attorneys' fees and costs." (Id.).
Count I of the Complaint sought declaratory reliefregarding Dex Media's noninfringement
ofYPPI's copyrights. (Adv. D.I. 1 at ,r,r 41-43). Contrary to YPPI's assertions, while the Court's
January 19, 2017 Order granted Dex Media's Motion for Judgment on the Pleadings and, thus,
specified "who has won," the Bankruptcy Court's Order did not set forth "what relief has been
awarded" to Dex Media as a result of the Bankruptcy Court's ruling, including the precise
declaratory relief to which Dex Media was entitled, and the formal disallowance of YPPI' s
purported claims. (Id. at ,r,r 41-43; ,r,r 48-51). The Order contained the following:
1. The portion of the Motion requesting judgment on the pleadings for res
judicata, judicial estoppel and collateral estoppel is granted.
2. The portion of the Motion addressing the motion to dismiss for failure to
state a claim is denied.
(Adv. D.I. 41; DEX 1152). The requirement that a judgment set forth the precise relief being
awarded is particularly important where, as here, the Court's ruling grants declaratory relief.
See Massey Ferguson Div. of Varity Corp. v. Gurley, 51 F.3d 102, 104 (7th Cir. 1995) (order in
declaratory judgment action granting defendants summary judgment did not satisfy Rule 58; "It
says that motions are being granted ('in part') but does not say who [among the defendants] is
entitled to what relief, an essential ingredient of a proper judgment."). In such circumstances, the
Court "must select the language of the declaratory judgment" that fits its ruling, and such language
and judgment "must be set forth on a separate paper." See Foremost Sales Promotions, Inc. v.
Dir., Bureau ofAlcohol, Tobacco & Firearms, 812 F.2d 1044, 1045 (7th Cir. 1987) ("The opinion
contemplated the entry of a declaratory judgment" but "[was] not itself a declaratory judgment,
which must be set forth on a separate paper."); Transamerica, 975 F.2d at 325 ("Transamerica's
complaint requested declaratory relief and, while the district court granted summary judgment in
31
favor of Transamerica on March 22, the court failed to provide the declaratory relief requested.
This omission rendered the March 22 judgment nonfinal and unappealable [under Rule 58(a)].").
Dex Media further argues that, even assuming YPPI is correct, and the Order the
Bankruptcy Court issued alongside the January 2017 Opinion, "had already fully complied with
Rule 58(a)" of the Federal Rules of Civil Procedure, that is not a basis on which YPPI can seek
reversal of the Declaratory Judgment. (Dex Br. at 54). The Court agrees. Where no final judgment
has been set out in a "separate document" following an otherwise dispositive ruling like the one in
the Bankruptcy Court's Opinion and Order, Rule 58 provides that "[a] party may request that
judgment be set out in a separate document as required by Rule 58(a)." Fed. R. Civ. P. 58(d).
There is nothing in Rule 58 that restricts the Bankruptcy Court's ability to enter an additional
document to further clarify its ruling, and YPPI does not cite a single case suggesting that a trial
comi's clarification of a prior decision, or the entry of multiple judgments under Rule 58(a),
constitutes reversible e1Tor. The Court finds no e1Tor in the entry of the Declaratory Judgment
specifying the declaratory relief granted.
2.
Inaccurate Infringement Ruling
YPPI argues that the Declaratory Judgment must be reversed because it "does not
accurately reflect the Bankruptcy Court's rulings." (YPPI Br. at 54). YPPI argues that "paragraph
2 of the Declaratory Judgmen[t] is not accurate because it states that "Dex Media has not infringed
any of YPPI's copyrights as alleged in YPPI's Answer and Counterclaims." The crux of YPPI's
objection is that the "Bankruptcy Court never made a finding" regarding whether Dex Media
infringed YPPI' s copyrights but instead "found that YPPI is precluded from asse1iing its copyright
claims." (Id. at 53). YPPI argues that "no such ruling was made nor could have been made"
because the Bankruptcy Comi found in its Opinion that YPPI was precluded from pursuing its
copyright infringement counterclaim . . . based on claim preclusion, judicial estoppel, and
32
collateral estoppel." "No other findings were made," "no infringement analysis was conducted
and no conclusion about infringement was reached." (Id. at 54). Conversely, Dex Media argues
that, as the copyright claimant, YPPI bore the "burden to prove that acts of infringement [by Dex
Media] occurred." (Dex Br. at 55-56 (citing William A. Graham Co. v. Haughey, 568 F.3d 425,
430 n.2 (3d Cir. 2009)).
In the Opinion, the Bankruptcy Court determined that YPPI was
precluded, judicially estopped, and collaterally estopped from asserting that Dex Media had
infringed YPPI' s copyrights, so including such a ruling is not inaccurate. The Court agrees with
Dex Media. Given that YPPI is barred from even asserting that Dex Media committed any acts of
infringement, let alone meeting its burden of proving such infringement, there is nothing
"inaccurate" about the Bankruptcy Court's issuance of a declaration of non-infringement in the
Declaratory Judgment.
3.
Improper Extension of the 14-Day Deadline
A motion for attorneys' fees "must ... be filed no later than 14 days after the entry of
judgment." Fed. R. Civ. P. 54(d)(2)(B)(i). YPPI claims that Dex Media's filing of the Certification
and Proposed Declaratory Judgment was a ploy "to reset the clock" on the 14-day deadline to file
a motion for attorneys' fees because it "forgot" to file it. (See YPPI Br. at 50 ("But then, Dex
Media forgot. Dex Media missed the deadline for filing a motion for award of attorneys' fees")).
Dex Media calls this argument irresponsible:
YPPI omits to mention the fact that Dex Media approached YPPI for its consent to
file a Certification of Counsel containing the proposed [Declaratory] Judgment
before the time for Dex Media's fee application purportedly expired. The only
reason Dex Media did not file the Certification, or its fee application, at that time
was because YPPI' s counsel requested that Dex Media refrain from doing so until
it had time to review the Certification. YPPI' s counsel then waited nearly two
weeks before advising Dex Media that YPPI would not consent to the proposed
Final Judgment. If what Dex Media wanted was an extension of time to file its fee
application, it could have simply requested such an extension from the Bankruptcy
Court (and would have received an extension automatically by operation of Local
Bankruptcy Rule 9006-2). In trnth, what Dex Media wanted was to work
cooperatively with YPPI to craft a Rule 58(a) form of judgment that the parties
33
jointly could present to the Bankruptcy Court. Little did Dex Media know that
YPPI would seize upon Dex Media's good faith efforts in a disingenuous attempt
to challenge Dex Media's right to attorneys' fees.
(Dex Br. at 56-57) (citations omitted). YPPI does not dispute that Dex Media proposed the form
of Declaratory Judgment prior to the deadline (or that YPPI did not respond for two weeks), which
undermines YPPI's argument that Dex Media requested entry of the Declaratory Judgment as a
ploy. (See YPPI Reply at 29-30). In response, YPPI states only that these events do not "rebut
the analysis or case law contained in YPPI's initial brief." (Id. at 30). The record supports Dex
Media's version of events. (See DEX 1163-70; DEX 1178).
The 14-day period established by Rule 54(d)(2)(B) for the filing of a motion for attorneys'
fees was introduced in large part to avoid piecemeal appeals of merits and fee questions, and that
14-dayperiod begins to run with the entry ofafinaljudgment. Weyantv. Okst, 198 F.3d 311,315
(2d Cir. 1999). For the reasons set forth above, the Order entered did not contain the declaratory
relief awarded and was not a final judgment triggering the 14-day period. Additionally, the 14day deadline may be - and in this case was - extended by order. S.A. Healey Co. v. Milwaukee
Metropolitan Sewerage Dist., 60 F.3d 305 (7 th Cir. 1995) ("When attorney fees are taxed as costs,
deadline for seeking them is 14 days, unless this time is extended by order."), cert. denied,
516 U.S. 1010 (1995). YPPI argues that it should have had a chance to respond to a request for
extension of the deadline. (See YPPI Br. at 55). The certification of counsel and proposed fo1m
of Declaratory Judgment contained the deadline for fee application, and YPPI filed a response
addressing this very issue. (See Adv. D.I. 49, 50, 52, 53, 54). This argument is not a basis to
reverse the entry of the Declaratory Judgment.
34
C.
Fee Award6
The primary objective of the Copyright Act is to encourage production of original literary,
artistic, and musical expression for the good of the public. See Fogerty v. Fantasy, Inc., 510 U.S.
517,524 (1994). Section 505 of the Copyright Act provides that "the court in its discretion may
allow the recovery of full costs by or against any party other than the United States or an officer
thereof." 17 U.S.C. § 505. "[T]he court may also award a reasonable attorney's fee to the
prevailing party as part of the costs." Id. The purpose of this fee shifting rule is "to encourage
parties [in copyright actions] with strong legal positions to stand on their rights" and "deter[] those
with weak [legal positions] from proceeding with litigation." Kirtsaeng, 136 S. Ct. at 1982, 1986.
In Fogerty, the Supreme Court held that attorneys' fees are not to be awarded to the
prevailing party "as a matter of course." See Fogerty, 510 U.S. at 533. As the statute uses the
word "may," which "clearly connotes discretion," "[t]he automatic awarding of attorneys' fees to
the prevailing party as a matter of course would pretermit the exercise of such discretion." Id. The
Supreme Court noted that there is no precise rule or formula in making this determination; rather,
a court's equitable discretion should be exercised. Id. at 534. However, the Supreme Court also
noted with approval several non-exclusive factors identified by the Third Circuit in Lieb v.
Topstone Indus., Inc., 788 F.2d 151 (3d Cir. 1986), as appropriate to "guide the court's discretion
in awarding attorney's fees, so long as such factors are faithful to the purposes of the Copyright
Act and are applied to prevailing plaintiffs and defendants in an evenhanded manner." Id. at n.19.
Those factors include "frivolousness, motivation, the objective unreasonableness (both in the
6
Pleadings referenced in Section III (C) of this Memorandum Opinion are docketed at Civ.
No. 18-197-MN and are cited herein as follows: YPPI's Opening Brief (D.I. 16) as "YPPI
Br. at_"; YPPI's appendix (D.I. 17, 18) as "YPPI Appx. _"; Dex Media's redacted
answering brief (D.I. 21) as "Dex Br. at_"; Dex Media's appendix (D.I. 22) as "DEX
_"; and YPPI's reply brief (D.I. 26) as "YPPI Reply at_."
35
factual and in the legal components of the case) and the need in particular circumstances to advance
considerations of compensation and deterrence." Id.; Lieb, 788 F.2d at 156.
The Supreme Court recently reaffirmed that§ 505 fee awards are discretionary. Kirtsaeng,
136 S. Ct. at 1983. As the Third Circuit observed, Kirtsaeng "placed extra, but not controlling,
weight on the 'objective reasonableness' factor, and reminded courts to consider the totality of the
circumstances and make a 'particularized, case-by-case assessment."' Leonard v. Stemtech Int'[
Inc., 834 F.3d 376,403 (3d Cir. 2016). However, a finding of objective unreasonableness is not a
prerequisite to impose fee shifting under the Copyright Act; a comi may award fees and costs "to
deter repeated instances of copyright infringement or overaggressive assertions of copyright
claims, again even if the losing position was reasonable in a paiiicular case." Kirtsaeng, 13 6 S. Ct.
at 1989.
The trial court "is entrusted with considerable discretion to determine whether an award
should be granted to the prevailing party, and, if so, whether the amount requested is reasonable
under the circumstances." Lowe v. Loud Records, 126 F.3dApp'x 545,547 (3d Cir. 2005)(quoting
Lieb, 788 F.2d at 155-56). Because an award of fees under the Copyright Act is discretionary,
"our standard of review is limited to determining whether that power has been abused." Lieb, 788
at 154. "If the ruling of the court rests on factual findings, we may reverse only if they are clearly
erroneous. If the trial court decided the issue on a legal precept, our review is plenary." Id. A
finding is '"clearly erroneous' when although there is evidence to supp01i it, the reviewing comi
on the entire evidence is left with the definite and firm conviction that a mistake has been
committed." US. v. Pelullo, 173 F.3d 131, 135 (3d Cir. 1999) (quoting United States v. United
States Gypsum Co., 333 U.S. 364,365 (1948)).
36
1.
Objective Unreasonableness
In reaching its determination that an award of attorneys' fees was appropriate under the
Copyright Act, the Bankruptcy Court was "convinced beyond near certainty that YPPI' s lawsuit
against Dex Media was a situation of 'objective unreasonableness."' (Adv. D.I. 104 at 4). In
reaching this conclusion, the Bankruptcy Court found that YPPI' s claims against Dex Media were
premised upon assertions that were "contrary to its previous representations to the Court in the
SuperMedia action." Id. On appeal, YPPI argues that the Bankruptcy Court clearly erred in
concluding that its Counterclaims were objectively unreasonable.
The record reflects that YPPI changed its position on several critical issues in this case.
YPPI admits to reversing its position on these issues 7 but argues that its change in position was not
in bad faith; rather, its change in position regarding the License's validity was based on "an express
finding made by the Bankruptcy Court in the earlier SuperMedia case" that SuperMedia transferred
YPPI's images to its third-party contractors in 2005 and 2006 in breach of the License. According
to YPPI, it simply "accepted" the Bankruptcy Court's finding in the earlier litigation, that a breach
had occurred and that application of 11 U.S.C. § 365(b)(l) leads to the conclusion that no
assumption could have occurred. Therefore, YPPI argues, its change in position was in reliance
on a previous ruling and cannot be bad faith. (YPPI Br. at 9, 23). Dex Media argues that the
Bankruptcy Court's finding of objective unreasonableness was compelled by the record below,
and that a finding of bad faith is not required. (Dex Br. at 25 (citing Lieb, 788 F.2d at 156)). The
7
YPPI acknowledged as much in its opposition to Dex Media's Motion for Judgment on the
Pleadings (YPPI Appx. 526, 528):
Admittedly, however, YPPI did [] assert in the SuperMedia case that the
License ... was valid and enforceable;
It is true that, prior to this Court's SuperMedia Final Ruling, YPPI agreed
that use of its copyrighted images in print ads was non-infringing.
37
Court rejects YPPI's argument for the same reason that the Bankruptcy Court rejected it: YPPI
knew about the timing of SuperMedia's transfers "before the conclusion of the SuperMedia
Litigation." Dex Media, 564 B.R. at 215. As the Bankruptcy Court found:
YPPI first alleged that the License Agreement between SuperMedia and YPPI was
valid and enforceable. Later, YPPI asserted [in the SuperMedia Litigation] that
there was a failure to assume the License Agreement because Idearc breached the
License Agreement in 2005 and 2006 - something YPPI knew /tad occurred
before tlte conclusion of tlte SuperMedia Litigation.
However, YPPI
subsequently abandoned the "failure to assume" claim. Now, [in the Dex Media
Litigation] YPPI is reasserting the claim that Dex Media has no rights under the
License Agreement. YPPI cannot flip-flop its position now.
Id. (emphasis added). The reassertion of a previously abandoned claims in new litigation against
the same parties is objectively unreasonable.
YPPI further argues that it was not objectively unreasonable to sue Dex Media after having
sued SuperMedia because YPPI' s claims are based on acts of infringement by Dex Media since
May 1, 2013, which is the day after the last date covered by any claims against SuperMedia. (YPPI
Br. at 23). YPPI argues, "these were new claims against a new party, which claims were not and
could not have been raised in the SuperMedia litigation." (Id. at 24). But YPPI not only could
have raised these claims in the SuperMedia litigation - it did. (DEX 316,
,r 26).
Under YPPI' s
"failure to assume" theory, as set forth in its Amended Proof of Claim, "any use or transfer of the
Licensed Images by SuperMedia at any point in time has been a violation of Yellow Pages'
copyrights in the Licensed Images." (Id.). As the Bankruptcy Court c01Tectly noted in entering
judgment against YPPI on its "new" claims on the basis of res judicata, the fact that these claims
address a different or later time period does not save them, as "the claims are based on events that
pre-date the filing of the SuperMedia Litigation." The Bankruptcy Court's finding of objective
unreasonableness of these claims was not clearly en-oneous. 8
8
YPPI relies on Leonard, a case in which this Court denied a defendants' motion for
attorneys' fees, concluding that the defendants' decision to file a second copyright suit
38
2.
Deterrence
Whether the need for deterrence warrants fee shifting depends on the facts and
circumstances of each individual case, and the Bankruptcy Court is required to make a
particularized, case-by-case assessment in awarding attorneys' fees. Kirtsaeng, 136 S. Ct. at 1985.
The Bankruptcy Court found it "clear that YPPI is now in the business of litigation." (Id. at 7).
YPPI "has no income from the sale of its photographs, but has brought suit against SuperMedia,
Dex Media, TaTa, Inc. and others." (Id.). In exercising its discretion to award reasonable fees in
this case, the Bankruptcy Court found that, in addition to the objective unreasonableness ofYPPI's
claims, deterrence was "an important consideration:"
Here, assessing the case on a particularized basis, YPPI filed the Dex Media lawsuit
mere weeks after the Court's ruling in the SuperMedia case. YPPI waited months
to serve Dex Media with the Complaint in the Florida Action. The Complaint in
the Florida Action also asserts positions contrary to YPPI's claims in previous
litigation. Deterrence is therefore an important consideration. Fee shifting will
deter the filing of weak law suits.
(Adv. D.I. 104 at 4-5 (citing Kirtsaeng, 136 S. Ct. at 1986; Stemtech Int'!, Inc., 834 F.3d at 403)).
After presiding over four years of litigation over YPPI's infringement claims, the Bankruptcy
Court concluded that it is "very important for SuperMedia to end YPPI's harassment." (Id. at 4).
YPPI argues on appeal that "[n]o evidence supports a finding that YPPI needs to be deterred from
filing frivolous cases." (YPPI Br. at 26-27). According to Dex Media, YPPI misses the point: the
"was not an end-run around" the Court's adverse ruling in the first suit, but rather stemmed
from plaintiffs belief that new infringing activity had occurred. Leonard v. Stemtech Int'!,
834 F.3d 376 (3d Cir. 2016). This case, however, differs from Leonard; there, the Third
Circuit found no abuse of discretion in denying a fee request where the trial court
determined there was no evidence that the suit was objectively unreasonable. See id. at
403. In contrast, here, the Bankruptcy Court was "convinced beyond near certainty that
YPPI's lawsuit against Dex Media was a situation of objective unreasonableness"
including YPPI' s assertion of "claims contrary to its previous representations to the Court
in the SuperMedia action." (Adv. D.I. 104 at 4).
39
need for deterrence 1s supported by this very case, which "should never have been filed."
(Dex Br. at 30).
Section 505 affords courts "wide latitude to award attorneys' fees based on the totality of
circumstances in a case." Kirtsaeng, 136 S. Ct. at 1985. Based on this record, the Court finds no
error in the Bankruptcy Court's consideration of deterrence as one of the factors in awarding
attorneys' fees. YPPI knowingly adopted "inconsistent positions in disregard of prior statements,"
and the record reflects that Dex Media was forced to expend significant fees to defend those claims.
Dex Media, 564 B.R. at 215. In addition to the record of misrepresentations in the litigation
between the parties, as detailed in the AdMedia Decision and the Rule 60(b) Decision, the
Bankruptcy Court spent four years presiding over YPPI's litigation tactics, including three separate
infringement actions, and was uniquely positioned to find that fee shifting was appropriate to deter
YPPI from filing additional lawsuits. Because this finding is not clearly erroneous, the Court finds
no abuse of discretion in the Bankruptcy Court's consideration of deterrence.
3.
Financial Ruin
The Copyright Act's fee shifting provision provides for discretionary award of fees and
costs with the intent of deterring the filing of weak law suits. Kirtsaeng, 136 S. Ct. at 1986. In its
other cases, YPPI has argued that awarding fees to the prevailing party is the rule, not the
exception. (See Adv. D.I. 104 at 3 (citing YPPI's motion for fees and costs filed in copyright
infringement litigation against Ziplocal, LP and Yellow Pages Group, LLC in the District Court
for the Middle District of Florida, Case No.8:12-CV-755-T-26EAJ)). In opposition to the award
of fees here, however, YPPI submitted declarations9 of its principal Moore indicating that, as of
January 9, 2018, YPPI had only $1,016.23 in "cash on hand" and no income. The Bankruptcy
Court took notice that, inter alia, YPPI has earned more than $4 million from copyright lawsuits
9
Adv. D.I. 91-1 & Adv. D.I. 100 ("Moore Declaration").
40
since 2009 and concluded that Dex Media "had not presented a clear record of its financial
circumstances." (Adv. D.I. 104 at 10).
On appeal, YPPI cites the Third Circuit's decision in Lieb, which notes that the aims of
§ 505 are "compensation and deterrence where appropriate, but not ruination." Lieb, 788 F.2d at
156. YPPI argues that the Bankruptcy Court erred in awarding fees that will result in the "financial
ruination" of its business. As the Moore Declaration demonstrates, and the Bankruptcy Court
found, YPPI's "business" earns "no income from the sale of its photographs." (Adv. D.I. 104 at
7). YPPI's argument would mean that regardless of how weak or objectively unreasonable its
infringement claims, shifting of fees in any amount was an abuse of the Bankruptcy Court's
discretion because any fee award (at least greater than $1,000) would result in YPPI's financial
ruination. This is not the law.
YPPI further argues that the Moore Declaration was the only uncontested evidence of its
financial condition, and that, in determining a reasonable fee award, the Bankruptcy Court erred
in failing to consider such evidence that fee shifting would result in YPPI' s financial ruin. YPPI
incorrectly characterizes the Moore Declaration as uncontested - it was clearly contested.
(See YPPI Appx. 1471). The record before the Bankruptcy Court showed that YPPI has settled
actions for, or been awarded, significant sums in infringement litigation, which its counsel has
conceded. (See DEX 490-91 at 37:12-38:13; DEX 492 at 70:5-9; DEX 515; YPPI Appx. 1376,
1543). Settlement agreements reflecting significant settlement amounts were part of the record in
the SuperMedia Litigation, and the Bankruptcy Court could take judicial notice of them. See Jones
v. Lapina, 450 F. App'x 103, 108 (3d Cir. 20011) ("A court may take judicial notice of the record
from a previous court proceeding between the parties."); United States v. Webber, 270 F. Supp.
286, 289 (D. Del. 1967) ajf'd 396 F.2d 381 (3d Cir. 1968) ("In this Circuit, it is clear that a District
41
Court may take judicial notice of the records of prior cases in its own court."). They are also part
of the record under seal in the Fee Award. (See YPPI Appx. 1471).
YPPI argues that despite evidence of these sizeable settlements, Dex Media has provided
no evidence that YPPI has actually received any proceeds from them. (See YPPI Reply at 8-9).
At best, the Moore Declaration does not appear to paint a full picture of YPPI' s financial condition.
Even if YPPI' s financial condition was clear from the record, YPPI cites no case holding that an
award of fees under § 505 in excess of a litigant's "cash on hand" is necessarily an abuse of
discretion, regardless of the facts and circumstances of the case. Based on this record, it was not
clearly erroneous for the Bankruptcy Court to have found that YPPI had not presented a clear
record of its financial circumstances sufficient to preclude a fee award, and the Court finds no
abuse of discretion or reason to disturb the Bankruptcy Court's dete1mination to award attorneys'
fees on this basis.
4.
Forum Rate Exceptions
Under § 505, only those fees that are "reasonable" may be awarded. See 17 U.S.C. § 505.
Under prevailing Third Circuit law, the reasonable rate for an attorney is "the prevailing rate in
the forum of the litigation." Interfaith Comm. Org. v. Honeywell Int'l, Inc., 426 F. 3d 694, 705
(3d Cir. 2005). This is referred to as the "forum rate rule." Id. YPPI argues on appeal that the
Bankruptcy Court abused its discretion in basing the Fee Award on the prevailing rates in the
forum in which Dex Media's counsel practices (New York) rather than the forum in which the
litigation occurred (Delaware). However, the forum rate rule contains two important exceptions:
"first, when the need for the special expe1iise of counsel from a distant district is shown; and
second, when local counsel are unwilling to handle the case." Interfaith, 426 F.3d at 705. "If the
prevailing party can show that it required the particular expertise of counsel from another vicinage
... then it will be entitled to compensation based on prevailing rates in the community in which
42
its attorneys practice." Id. at 699. A trial court's determination that one or both of these exceptions
applies will not be disturbed unless "clearly erroneous." See id. at 705.
The Bankruptcy Court held that Interfaith was satisfied here because Dex Media required
the "knowledge and expertise" of its Non-Local Counsel. 10 (See Adv. D.I. 104 at 7). The
Bankruptcy Court therefore determined that it was appropriate to calculate the fees of Dex Media's
Non-Local Counsel based upon their normal hourly rate. (Id.). On appeal, YPPI offers no basis
to conclude that the Bankruptcy Court clearly erred in finding that the case fell within the first
exception to the forum rate rule. YPPI argues that Dex Media failed to show the need for NonLocal Counsel, but the Court disagrees. Here, the Bankruptcy Comt found that Dex Media
required the "special expertise" of the very same Non-Local Counsel that represented SuperMedia
in YPPI's prior infringement action. (Id. at 7 ("The SuperMedia [L]itigation was essential to the
arguments which proved successful in the Dex Media proceeding. New or different counsel would
not have had the knowledge of the SuperMedia action which brought about the dismissal of the
Dex Media action.")). YPPI also argues on appeal that "Dex Media's Delaware counsel [Patrick
Jackson] possessed knowledge equal to if not superior to that of its New York Counsel." (YPPI
Br. at 34). The Court is not persuaded. As Dex Media argues, "Mr. Jackson is a bankruptcy
lawyer, and this was a copyright litigation." (Dex Br. at 40).
The record supports the Bankruptcy Court's conclusion that Dex Media required the
"knowledge and expertise" of its Non-Local Counsel. Because the Bankruptcy Court's finding
that "[t]he expertise of Non-Local Counsel was clearly required" is not clearly erroneous, and the
award of fees based on Non-Local Counsel's normal hourly rate is consistent with Third Circuit
law and was not an abuse of discretion.
10
Except for Patrick Jackson who practices in Delaware ("Local Counsel"), the Bankruptcy
Court referred to Dex Media's other attorneys as "Non-Local Counsel." See Op. at 3 n.2.
43
5.
Calculation of Reasonable Hours
Having determined that fee shifting was appropriate in this case, the Bankruptcy Court was
required to determine what fees are reasonably awarded under the Act. Based on the Court's
independent review, as described in the Opinion, the Bankruptcy Court determined that certain
reductions in the attorneys' fees incurred (and already paid) by Dex Media were appropriate, and
that fees in the amount of $504,025.50 were reasonably awarded. (Adv. D.I. 104 at 7, 10). The
Court finds no basis to disturb the Bankruptcy Court's careful calculation of a reasonable award.
The Bankruptcy Court was careful to identify concerns prior to its review. Specifically,
while knowledge of the SuperMedia Litigation was of critical importance to success on the motion
to dismiss, the Bankruptcy Court observed that Dex Media's Non-Local Counsel already knew the
SuperMedia Litigation inside and out. (Id. at 7-8). Additionally, the Bankruptcy Court found it
appropriate to deduct all of the fees incurred with the Florida Action as "separate litigation." 11
While recognizing that the litigation expenses Dex Media was required to incur in response to the
Florida Action related to YPPI' s copyright claims, and presented a hindrance to Dex Media, the
Bankruptcy Court declined to award fees relating to the Florida Action, as that litigation was not
"work product that was actually utilized in the instant litigation."
(Adv. D.I. 104 at 8
(citing Gulfstream III Assocs. Inc. v. Gulfstream Aerospace Corp., 995 F.2d 414, 420 (3d Cir.
1993))).
11
These efforts included moving the Dex Media Litigation from Florida to the Delaware
Bankruptcy Court, which had tried the SuperMedia case and understood the arguments
more readily than would have another court. (Adv. D.I. 104 at 8). The Bankruptcy Court
also noted that YPPI undertook the following actions in connection with the Florida Action:
"(1) filed its copyright lawsuit against SuperMedia's parent company, Dex Media, in
Florida using the theory that was inconsistent with what it argued in the SuperMedia action;
(2) did not serve the complaint in the Florida Action for more than 100 days; (3) refused
Dex Media the courtesy of an extension of time to answer, move, or otherwise plead in the
Florida Action; (4) moved to dismiss the action that Dex Media had filed in Delaware; and
(5) sought in the Florida Action to enjoin Dex Media from proceeding in Delaware." (Id.).
44
Based on the foregoing considerations, the Bankruptcy Court conducted an independent
review of each attorney's time records.
Giving consideration to Non-Local Counsel's prior
knowledge of the SuperMedia Litigation, the Bankruptcy Court undertook a "line by line" review
of each attorney's time records, and, "[t]or each and every entry," the Bankruptcy Court "used its
independent judgment to approximate the time necessary for the dispute." (Id. at 9). The Opinion
included a chart setting forth each attorney's billed time, the reduced time as determined by the
Bankruptcy Court's independent review, and the amount by which each attorney's fees were
therefore reduced. As a result of the review, the 904.7 hours billed by Dex Media's Non-Local
Counsel were reduced by 218.6 hours, resulting in a $161,023.00 fee reduction. (Id.). The Opinion
also included a separate chart setting forth the Florida Action reductions in the amount of
$103,950.00. (Id.). Between the Florida Action and the Non-Local Counsel Fees, the Bankruptcy
Court's review resulted in a total reduction of $264,973.00 - or roughly 33% of the total fees
requested by Dex Media. It is difficult to conceive of a more thorough review. As Dex Media
correctly argues, "the law requires nothing more." See Interfaith, 426 F.3d at 711 (trial court
should determine the attorney hours "reasonably expended" for the dispute).
On appeal, YPPI argues that the Bankruptcy Court failed to "identify the number of hours
it found to be reasonably expended on the case below." (YPPI Br. at 35). This argument is
unavailing. It is unclear what additional information YPPI would need in order to make such a
determination. Dex Media's fee application included detailed time entries. (See Adv. D.I. 64).
The record reflects that YPPI deposed Dex Media's attorneys in connection with the fee
application. (Adv. D.I. 83). The Bankruptcy Court excluded hours it deemed unnecessary,
awarded fees based on those hours that were "reasonably expended" on the litigation, and listed
the reduced hours on a chart by timekeeper. (Adv. D.I. 104 at 9). To the extent YPPI is arguing
45
that the Bankruptcy Court failed to include a task by task explanation for its reductions, YPPI cites
no authority imposing such a requirement.
6.
Travel Time and Costs
The Bankruptcy Court found that "[t]ravel time is appropriately billed because Non-Local
Counsel worked on the case and needed to get to Wilmington from New York." (Adv. D .I. 104 at
9-10). YPPI argues that the Bankmptcy Court clearly erred in "awarding Dex Media attorneys'
fees and costs for the hours its New York counsel charged for travel time." (YPPI Br. at 38). Dex
Media responds that the record reflects that its counsel only charged for travel if the attorneys were
working on the Dex Media Litigation during that travel time. (Dex Br. at 42). "If the attorneys
were not working on the matter, they did not bill for travel time." (Id. at 42-43). The record
supports this conclusion. (See DEX 493-94 at 73:9-74:13). The Banl<111ptcy Court's finding that
hours reasonably expended by Dex Media's counsel could include work on the case undertaken
during travel presents no basis to disturb the Fee Award.
IV.
CONCLUSION
After presiding over YPPI' s copyright infringement claims for more than four years, the
Bankruptcy Court determined that YPPI was estopped from pursuing additional infringement
claims against SuperMedia's parent on its previously abandoned "failure to assume" theory and
granted the Motion for Judgment on the Pleadings. The Bankruptcy Court then properly entered
a separate Declaratory Judgment specifying the relief granted. As the prevailing party in the
litigation, the Banl<111ptcy Court determined that a fee award was appropriate under § 505, based
on the objective umeasonableness of YPPI's claims and the need to advance considerations of
deten-ence and compensation. The Banl<111ptcy Court undertook a line by line review of each
attorney's time records, applied its independent judgment to approximate what fees were
reasonably necessary for each dispute, and made significant reductions. In undertaking this careful
46
review, the Bankruptcy Court fulfilled its obligation to determine "whether the hours set out were
reasonably expended for each of the particular purposes described and then exclude those that are
'excessive, redundant, or otherwise unnecessary."' Interfaith, 426 F.3d at 711. Far from abusing
its discretion in awarding fees, the Bankruptcy Court adhered to the framework set forth in
controlling case law. A separate order shall be entered.
November 28, 2018
The Honor
aryellen Noreika
United States District Judge
47
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